Services like health and education may now come under service tax from the next fiscal only. The provision, a part of compensation to states for the phase out of central sales tax, is at present under consideration with the finance ministry. However, according to sources close to the development, since almost half the fiscal has gone by now it may now be introduced in 2008-09.

Once the Centre clears it, states will have to make the necessary changes in their respective laws. All this will take time and states may decide to introduce the new services on which tax is to be levied as part of their next Budgets, the source said.

In July this year, the empowered committee of state finance ministers had chosen about five services, including those provided by all private educational institutions, unaided health institutions and hospitals, except below poverty line cases, amusement parks and rotaries who certify legal documents, to levy service tax. While the focus would be on taxing private health and education mainly, education and health for the common people will not be affected.

The empowered committee had sent the proposal to the finance ministry for its assent.

Once it gets the approval, the Centre and each state will then pass a legislation to enable states to tax these services at the rate of 12.36% or the prevailing rate. These services were part of the list of 44 new services along with 33 existing services that were given to the states in January by the Centre as part of the compensation package for CST phase out.